Not a week goes by without us hearing about another SAP customer that’s changing its business model to include services. Air conditioner manufacturers are now offering more comprehensive home heating and cooling services, and cellular telephone makers have become mobile connectivity providers. Even the computing industry is migrating toward a more services-based model, as software-as-a-service (SaaS) and cloud computing offerings rise in popularity.1
To satisfy increasingly difficult customer demands, respond to new regulations, overcome shrinking margins, and differentiate themselves from the competition, companies are closely evaluating their core added value and then packaging and selling this value in creative, services-based ways (see the “New Business Rules” sidebar). When companies offer more innovative and value-based services — and when they execute them intelligently — they can achieve increased profitability, customer loyalty, and a guaranteed edge in the marketplace.
But it’s not an easy road. Although the payoff for successful ventures promises to be huge, the complexities and fast-changing nature of the services environment can create pitfalls along the way:
- Migrating a business to a services-based approach — moving it from producing physical products to offering virtual services — requires that you transform and expand the value chain, and that you continuously evolve your offerings so that customers become co-innovators in service design.
- Pricing for services cannot be approached like pricing for products: Services must be priced based not just on what they are, but on how they are used over time.
- Whereas products may be sold through multi-tier distribution, service delivery implies an ongoing, direct relationship with customers. This requires managing mass volumes of subscriptions, usage-based pricing, and promotions that encourage consumers to try additional services and spend more money.
- When one transaction can trigger multiple settlements to multiple partners, an automated system is needed to manage volume settlements in real time, avoiding the time and cost typically spent on complex, error-prone, post-settlement tasks.
And the risks are high. With the free flow of information on the Internet and the ease of e-commerce and electronic trading, customers’ tolerance for product and service failures has plummeted. Customers are quick to go elsewhere unless they have a superior customer experience every time they engage with your company. They simply want to use your services at the time, in the place, and in the manner of their choosing — all at the lowest possible cost.
Companies looking to expand into services-based business models would be wise to realize that the questions and impending transformations they face are common across a surprising range of industries. Fundamentally services-based industries (such as telecommunications and utilities) have already figured out how to solve many of these challenges. Their key best practice? Having the right system in place to support the demands of monetizing service delivery. (Later in the article, we’ll introduce you to a new SAP solution that fits this bill.)
Shifting to a Multi-Sided Business Model: The Business and System Implications
It’s rare that a company moving to a services-based approach can offer a complete service on its own. Business models must shift accordingly: Enabled by advances in computing and the Internet, multi-sided business models are quickly replacing the traditional single-sided selling model.
- In the single-sided model, a supplier offers products and services to customers, and there are no strong interdependencies with other parties.
- In the multi-sided model, companies generate new economic value by bringing two or more distinct groups of actors, who value each other’s participation, onto the same platform. As a result, business models and company roles become less rigid, and the value chain disaggregates and can be recombined to unlock hidden opportunities.
This means that industry participants are constantly trying new ways of working together to deliver services for businesses and consumers. It is neither a vertical nor a horizontal model, but a mish-mash of companies continuously drawing and redrawing the lines in different ways to build value-delivery chains that make sense for the end customer and the partners involved. Many individual players participate in multiple overlapping value chains, sometimes with radically different business models operating in each.
Such multi-sided arrangements are difficult to manage. They are characterized by uncertainty and are hard to predict. The business model that works today may not work tomorrow — and the complementary partners that one works with now may soon be direct competitors.
Accordingly, one of the central challenges facing businesses right now is sustainable value creation: how to capture and share the value of intangibles to generate revenue and, more significantly, profit. This challenge is exacerbated by a number of factors, including the rapidly falling prices of new products and services, and customers’ expectations of free services subsidized by third parties in multi-sided markets.
As a result, companies require new business systems that can calculate sophisticated service revenues and costs continuously and accurately, sometimes operating in real time. These systems must simultaneously manage massive transaction volumes and give companies the ability to rapidly change their business models so that they can price services at just the right point to optimize revenue, costs, and profits. These new business systems must also permit companies to accurately bill and collect revenue from their customers and to share these revenues with their partners.
Also, when delivering content and services, companies must be able to track exactly what customers are consuming and charge based on actual consumption, thereby maximizing their revenue potential and apportioning cost to the true cost drivers. The ability to track usage opens the door to new pricing options for companies that had previously been constrained to flat-rate models.
The Solution? Real-Time Convergent Charging — Now Possible with SAP
To meet these demands, service providers require tools designed for cross-industry transaction management. Service providers need to have the capacity to capture, benchmark, and share the value of intangible services, regardless of the complexity, velocity, or volume of transactions that these services generate. In addition, they need to be able to define pricing strategies, test and apply them in real time, manage transactions between partners, and feed historical usage data back into the evolution of pricing policies. All of this must be assured with accurate forecasting and follow-up in order to secure profits.
SAP Convergent Charging is a cross-industry monetization platform (see Figure 1) that provides clear business benefits for a broad range of industries, such as telecommunications, high tech, media, transportation, logistics, finance, and utilities. This innovative platform from SAP (the result of SAP’s acquisition of Highdeal) enables companies to monetize services dynamically and in real time, manage revenue sharing between diverse business partners, and sustain massive transaction volumes for tens of millions of customers, while rapidly changing companies’ business models and optimizing profitability. With the assistance of SAP Convergent Charging, companies can increase customer loyalty, market differentiation, and profitability by gaining faster time-to-market for new services or bundles and more flexibility in developing business models that go beyond the historic methods of engaging customers (see sidebar below for additional benefits).
||SAP Convergent Charging uses easy-to-learn visual programming that can reduce business users’ dependency on IT, enabling new services to be launched in hours and days rather than weeks and months
As a player in a highly dynamic, hyper-connected marketplace, you may have systems in place today that are not flexible enough to take your business where you want to go. Rest assured: If you’re considering embracing services as part of your portfolio, there are systems out there that can keep pace with your evolving services and changing business models. And now, thanks to SAP’s acquisition of Highdeal and on-ramping of the SAP Convergent Charging solution, SAP has those systems.
To learn more, visit www.sap.com/industries/telecom/businessprocesses/convergent-charging.
You may often see SAP Convergent Charging coupled with two other modules: SAP Convergent Invoicing for Telecommunications and SAP Customer Financials Management for Telecommunications. SAP is packaging these together as the consume-to-cash solution, delivered as a complete business process. Note, however, that you can implement and run SAP Convergent Charging independent of these other modules.
Fergus O’Reilly (email@example.com) is Chief Solution Expert for SAP Convergent Charging. Previously, Fergus was the CTO of Highdeal, a pricing, rating, and charging software provider that was acquired by SAP. He was also the principal product manager for AOL iPlanet’s eCommerce Solutions and the co-founder and CEO of FindShare, Inc. Fergus holds a bachelor’s degree in computer science from Trinity College in Dublin. He was born and raised in Ireland.
Glenda Akers (firstname.lastname@example.org) is Head of the Telecommunications Industry Business Unit at SAP. She brings over 25 years of experience in the telecommunications and software industry to SAP, having held executive positions with SoloMio, MetaSolv, Sybase, and MCI. Glenda has managed various product marketing, engineering, and professional services groups across start-ups and Fortune 500 corporations to deliver solutions — including network lifecycle management, order management, and interactive TV — to the telecom industry.
1 See the two “Example” sidebars within this article for an in-depth look at service examples in the telecommunications and high tech industries. [back]